California running out of money again

Updated 2:45 pm, Friday, September 14, 2012

Photo: Rich Pedroncelli, AP

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Controller John Chiang discusses his decision to halt paychecks for all 120 state lawmakers after they failed to come up with a balanced budget by the June 15th deadline, during an interview with the Associated Press in Sacramento, Calif., Tuesday, June21, 2011. Chiang said that he found the plan passed by Democrats on a simple majority vote last week was not balanced and therefore lawmakers did not meet the requirement for getting paid under Proposition 25, passed by the voters in November. less

Controller John Chiang discusses his decision to halt paychecks for all 120 state lawmakers after they failed to come up with a balanced budget by the June 15th deadline, during an interview with the Associated ... more

Photo: Rich Pedroncelli, AP

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State Sen. Mark Leno

State Sen. Mark Leno

Photo: Rich Pedroncelli, Associated Press

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Assemblyman Jim Nielsen

Assemblyman Jim Nielsen

Photo: Rich Pedroncelli, Associated Press

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File- In this March 15, 2011 file photo, California State Controller John Chiang, looks over some papers during a meeting in Sacramento, Calif. The California controller will audit the city of Montebello a struggling city for financial irregularities amid suspicions that it submitted false, incomplete or incorrect reports. Chiang announced the upcoming audit Thursday in a letter to officials in the eastern Los Angeles suburb of 65,000, which also has been the target of federal and local investigations. ( AP Photo, File) less

File- In this March 15, 2011 file photo, California State Controller John Chiang, looks over some papers during a meeting in Sacramento, Calif. The California controller will audit the city of Montebello a ... more

Photo: Anonymous, ASSOCIATED PRESS

California running out of money again

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Sacramento --

California will run out of cash by March 1 if the Legislature does not take immediate action, Controller John Chiang told budget leaders at the Capitol in a letter Tuesday.

The controller recommends borrowing and delaying some payments to deal with the shortfall, which he projects will last seven weeks. Absent that kind of action, which lawmakers and the administration of Gov. Jerry Brown say is assured, the state would probably have to send IOUs and delay tax returns.

"Although this cash-management plan relies on still more borrowing, payment delays and deferrals, we believe this is the most prudent and responsible course of action considering we have about four weeks before the advent of a cash shortfall," Chiang wrote in a letter to the chairmen of the Assembly and Senate budget committees.

He called the plan to borrow and put off some bills the "ideal way" to avoid IOUs and tax-refund delays.

Spending beyond means

The controller said the overarching problem is that, as of the end of the calendar year, the state was spending $2.6 billion more than was included in the budget while tax revenue coming into state coffers was $2.6 billion below projections.

He said $3.3 billion must somehow be found if the state is going to bridge the seven-week cash shortfall period, but the situation could get worse if there is more overspending and further reductions in tax income.

Part of the problem, Chiang said, stems from court rulings. On Monday, a federal judge in Los Angeles issued a preliminary order blocking planned 10 percent rate cuts to providers of Medi-Cal, the state's health program for the poor. The Department of Finance is still calculating the exact impact of that.

Lawmakers said they are not overly concerned and promised that a temporary solution will be found, perhaps this week.

State Sen. Mark Leno, D-San Francisco, who is chairman of the Senate Committee on Budget and Fiscal Review, called the projected shortfall "a very short-term cash-management situation."

"All budgets are, by nature, an educated guess," Leno said.

Meanwhile, the Assembly Budget Committee approved a bill Tuesday that would allow state finance officials to borrow $865 million more from special funds and use that money for the general fund. Special funds contain money raised for specific purposes, while the general fund is the repository of general taxes that pay for most state services.

The other parts of the budget plan are not yet final, and do not require the approval of the Legislature, said H.D. Palmer, spokesman for the Department of Finance, which is working with Chiang on the cash shortage.

Chiang said the state will fall below a $2.5 billion "cushion" of cash on hand on Feb. 29, and the next day it would be in the red. The problem would grow to a $730 million deficit by March 8, and the overall cash shortfall would last until sometime around April 13, he said.

It's about the timing

Assemblyman Bob Blumenfield, D-Woodland Hills (Los Angeles County), chairman of the Assembly budget committee, said the shortfall has much to do with timing.

"The state operates in a binge-purge modality when it comes to tax revenues, because we get a lot of money up front and at certain times of the year, whereas our expenses are more consistent throughout the year," he said.

But this was not something leaders had planned for when they passed the budget in June.

Assemblyman Jim Nielsen, R-Gerber (Tehama County), who is vice chairman of the Assembly budget committee, said wrong assumptions about spending and revenue are traditions of state budgeting. He pointed out, though, that there is less of it in the current spending plan.

"It's still a lot," Nielsen said. "We need to be a lot more careful ... about what those expenditures and revenues are going to be."

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